Silkbank approves HBL’s due diligence request for portfolio divestment

The Borad of Directors (BoD) of Silkbank Limited has accorded, in principle, its approval to Habib Bank Limited’s (HBL’s) request to provide its concurrence to the latter (HBL) to apply to State Bank of Pakistan to proceed with the due diligence of the Consumer Portfolio of Silkbank Limited.

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Silkbank has recently initiated negotiations for a deal with Habib Bank Ltd (HBL), the country’s largest commercial bank, to sell its consumer portfolio, disclosed a notice sent to the Pakistan Stock Exchange (PSX) on Thursday.

“We would like to inform you that Fauji Foundation will not be proceeding with the due diligence process of Silkbank Limited, in pursuance of its application in this regard,” the Silkbank said in a filing with the PSX on Thursday.

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According to the material information sent to Pakistan Stock Exchange on Thursday, HBL has request Silkbank Limited to prove its concurrence to HBL to apply to State Bank of Pakistan to proceed with the due diligence of the Consumer Portfolio of Silkbank Limited comprising credit cards, running finance and personal installment loans, in order to explore the possibility of HBL’s potential interest in the same.

Silkbank Limited, formerly known as Saudi-Pak Commercial Bank, is a Pakistani commercial bank which is based in Karachi, Pakistan. It has a branch network of 123 in 39 cities.

The divestment of Silkbank’s portfolio would help HBL to increase its portfolio size and net interest income. HBL’s interest in SBL consumer assets follows the collapse of Fauji Foundation’s interest in acquiring the bank.

Reportedly, the bank was trying to raise funds for improving its current Capital Adequacy Ratio (CAR), also known as capital to risk-weighted assets ratio. CAR is a measure of how much capital a bank has available, reported as a percentage of a bank’s risk-weighted credit exposures.

At present, according to Silkbank’s nine-month unaudited accounts for the period covering January-September 2020, the bank’s CAR eroded significantly in nine months from 5.81pc at the end of 2019 to 4.16pc at the end of September 2020.

The SBP requires banks to maintain CAR at 11pc. The erosion in CAR shows a significant increase in the bank’s infected loan portfolio in the period between January and September, forcing it to make provisions of Rs2.81 billion against non-performing loans.

The purpose of CAR is to establish that the banks have enough capital on reserve to handle a certain number of losses, before being at risk of becoming insolvent.

On the other hand, HBL has the highest advances in the industry at Rs1.2 trillion as of December 2020, translating into an advances-to-deposit ratio of 42 percent.

Silkbank, had a strong consumer asset base of Rs18.4bn in personal loans, credit cards and running loans at the end of September. According to the unaudited accounts, the bank opened 9,895 new consumer loans during the third quarter of last year.

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Silkbank earned a profit-after-tax of Rs150.84 million 9MCY20 compared with a cumulative loss of Rs2.77bn in 2019, with the EPS (earnings per share) growing to Rs0.02 per share from a loss per share of Rs0.30. The net assets, however, have declined to Rs8.92bn from Rs10.77bn because of the downward revaluation of its assets.